The Japanese PEO/HRO Market Potential



Hiroshi Karibe


Japan Association for PEOs




Kenneth A. Polcyn, Ph.D.

Senior Consultant

Deva Industries, Inc.


Some Japan entities have been monitoring the U.S. business model in general, and the Professional Employer Organization (PEO) in particular, along with variations of outsourcing since the early 1990’s. They have been intrigued by the PEO Industry’s potential for assisting small businesses. In the 90s U.S. small businesses were the leading contributors to U.S. job growth providing 50 percent of the Gross Domestic Product. Looking at future projections they saw U.S. small businesses were expected to create 60 percent of the new jobs in 2005. Not the situation in Japan!


What does U.S. small business performance have to do with the Japanese economy? For more than a decade Japan has been in turmoil including deflation, banks continuing to prop up large debt ridden companies and government-directed capitalism supporting large, unprofitable, poorly run businesses and discouraging competition. Over time small businesses have suffered. Now in some Japanese government, business and academic circles there is a growing interest in emulating the Anglo-American Competition Model, to reap the potential of small business contribution for reviving the Japanese economy with a truly laissez-faire model to compete in the global economy. Nevertheless, Japanese firms when faced with new foreign competitors can be ruthlessly fierce to keep foreign from succeeding. This has led to an interestingly innovative Japanese approach. 


During 2002 delegations consisting of the Japanese government, academia, and business representatives visited the U.S., exploring small business and the PEO/HRO potential, talking with personnel from various U.S. Government agencies and the National Association of Professional Employer Organization (NAPEO). After further research during 2003 and 2004 the decision was made to pursue the concept in Japan, to establish a Japanese based small/medium business outsourcing model unique to the country. The result was the September 2004 creation of the Japan Association for Professional Employer Organization (JAPEO).


A key player was the Japan Business Federation, a comprehensive economic organization created in 2002 by absorbing the Japan Federation of Economic Organizations and Japan Federation of Employers’ Association. As of May 2004 it had a membership 1,623 including 1,306 Japanese companies, 91 foreign companies, 129 industrial associations, 47 regional employer association, plus others.  The mission of the Federation is to achieve a private sector led, affluent market economy, creating a model for Japan that will lead to national economic recovery and contribute to the global economy.


At a November 16, 2004 Tokyo meeting in the Hall of the Japan Business Federation’s, the concept was presented to Human Resources Representatives from various large and small companies from throughout Japan, along with the media. Speakers from the United States, the Japanese Business Federation, the Legal Circles and the JAPEO President provided presentations. A new Japanese book (Employment Revolution with PEO/The New Employment Business in the USA) was also provided to attendees. It describes/explains the U.S. PEO/HRO concept and potential for Japan.


The meeting generated considerable interest from the attendees and requests for further discussion. Moreover, an article that followed in the monthly Japanese “Human Resource Business” magazine created additional inquiries for information. Since then, JAPEO has been conducting meetings with Japanese businessmen. This has resulted in a desire to talk with American PEOs/HROs Companies that may be interested in expansion of their business in Japan. Partnerships and Joint Ventures are options. However, some Japanese entrepreneurs are considering establishing their own unique companies to service small businesses. At the moment the PEO is not a recognized form of business in Japan requiring business law changes. However, the HRO is acceptable.



Nevertheless, JAPEO, with its partners, is moving forward with models for conducting PEOs/HROs business in Japan. Some of the models should be available in 2005. One model will explain the steps required to create such businesses. Another will address the unique services/products and operating components of a Japanese PEO/HRO as well as related processes reflecting government laws and regulations. Also there will be a model treating the financial aspects including pricing strategies and the creation of a proposal system for helping to sell products/services. The final model will focus on Japanese/American partnerships and Joint Ventures. JAPEO is looking forward to contributing to the new business economy.


For more information contact Deva Industries, Inc.